Two sides, one goal: Preventing and resolving disputes with the IRS

Take a closer look at how the IRS Large Business and International (LB&I) division is working to improve the taxpayer-IRS relationship by resolving disputes at the earliest stage, reducing complexity and increasing predictability.

Get to know the IRS, its people and the issues that affect taxpayers

By Doug O'Donnell
CL-21-11, March 25, 2021

In popular culture, the IRS tends to be regarded as a mysterious, intimidating government entity staffed with uncaring auditors. This depiction bears no resemblance to the dedicated public servants I’ve worked with at the IRS for my entire professional career who bring the same passion to tax administration that taxpayers bring to their own careers. Indeed, our culture and mission drive our commitment to service and accuracy. Our goal is to equip businesses with the knowledge and awareness that foster voluntary compliance so that we can focus our efforts on complex cases or those involving intentional disregard for the rules.

We at the IRS mean well, and we understand that most taxpayers also mean well. However, even when both sides operate with the best intentions, sometimes we aren’t able to agree, at least not during or after the initial examination of a return. In my career, I’ve witnessed and been a part of my fair share of tax disputes. Taxes can be complex and there can be different perspectives on both sides of the auditor’s table. While we won’t always see eye to eye, we are committed to minimizing the frequency of disputes and efficiently resolving those that do arise. This work to resolve disputes at the earliest stage (and preferably prevent them) goes hand in hand with other actions that improve the taxpayer-IRS relationship, like reducing complexity and increasing predictability.

Devoting resources to prevent and resolve disputes is not just a goal of U.S. tax administration. Governments around the world that participate in the Organization for Economic Cooperation and Development’s (OECD) Forum on Tax Administration (FTA) have taken up the cause. The FTA’s Tax Certainty Agenda is driven by the awareness that uncertainty in tax matters negatively impacts cross-border trade and investment. The U.S. and other nations want more trade, investment and economic growth, which is a priority we share with businesses. Uncertainty worries tax administrations that they will be deprived of taxes owed on profits that multinational enterprises earn in their country. It’s also concerning to businesses, which commonly consider income tax effects when making decisions about investing or expanding to different locations. Diminishing this kind of uncertainty benefits those who file taxes and those who oversee them.

Tax certainty has been central to the FTA for several years. The Group of Twenty forum (G20) also identified the importance of work on pro-growth tax policies and tax certainty and it remains a priority for tax administrations worldwide. In the report from the most recent general conference of the FTA Commissioners, participating tax administrations agreed to:

• Permanently establish the International Compliance Assurance Program (ICAP), a voluntary program between an expanding set of tax administrations that’s meant to facilitate cooperative risk assessment and assurance between global businesses and the countries where they have activities.
• Improve transfer pricing dispute prevention for cross-border businesses by employing consistent benchmarks and by expanding advance pricing arrangements (APAs) and mutual agreement procedures (MAPs). In the case of APAs, the certainty may extend to one or more additional taxpayers and tax administrations.
• Develop more secure, seamless channels for tax administrations to interact when discussing confidential taxpayer information.

The Large Business and International (LB&I) Division I lead, and the IRS as a whole, are committed to fostering tax certainty through our work with FTA countries and our established internal programs. LB&I’s Transfer Pricing teams have been leading FTA work with other countries to streamline existing programs like APAs, to develop benchmarks for routine cross-border transactions, and to participate in tools like ICAP to prevent cross-border tax disputes. Our organization created other programs that enhance tax certainty for taxpayers and the IRS before a return is even filed, like the Pre-Filing Agreement, Industry Issue Resolution and Compliance Assurance Process.

As a taxpayer, your option to disagree with us does not end with the agent’s determination. It may feel that way, though, if you aren’t familiar with options to prevent or resolve disputes. It’s built right in our mission that the service we provide is intended to help you understand how we administer taxes for the country. Equal and easy access to knowledge is empowering, and we try at every turn to provide such access. As often as possible, we release our guidance and training materials to the public, because having some expectation of how we view an issue is good preparation at every stage of tax planning and compliance.

We want you to approach an engagement with us — be it in a pre-filing or post-filing posture — knowing your rights as well as your responsibilities. While it’s our job to be familiar with the inner workings of the tax system, it’s your right to come to the table on equal footing. To that end, and in response to feedback from our advisory committee, last month, we debuted a new online tool detailing options to prevent and resolve disputes.

The IRS and taxpayers share a common ideal to fix issues before they become disputes. Having some certainty before the return is filed gives taxpayers the best reassurance. In cases of uncertainty, effective dispute resolution methods are those that are fair, accessible and timely. Our new tool describes pre-filing options like APAs to avoid transfer pricing disputes with us and our treaty partner administrations. Post-filing options include Accelerated Issue Resolution (AIR), which allows large corporate taxpayers under audit to seek reassurance that the resolution for specific issues from a year under examination will be extended to all filed returns. We also include an overview of common appeals paths that can help taxpayers resolve disputes without the need for Tax Court.

For just about every issue or situation, the IRS extends a service to empower taxpayers and amplify their voices. This is one of many reasons I’m proud to serve at the agency.

Doug O’Donnell
Commissioner, Large Business and International Division